The International Monetary Fund has highlighted risks of a new financial crisis, warning that global output could be cut by 4% over the next five years by a repeat of the market mayhem witnessed during the 2008-09 recession.

The IMF used its half-yearly global financial stability report to call for urgent action on the problems of banks in the eurozone, a third of which it said faced “significant challenges” to be sustainably profitable.

“In the euro area, market pressures also highlighted long-standing legacy issues, indicating that a more complete solution to European banks’ problems cannot be further postponed,” the IMF said. It said there needed to be a comprehensive strategy to deal with €900bn (£715bn) of non-performing loans (NPLs) on the books of eurozone banks, adding that banks also needed to be closed in order to deal with excess capacity.

“The hardest hit banking systems within the euro area in February have been those of Greece, Italy and, to a lesser extent, Portugal, along with some large German banks, reflecting some or all of the following factors: structural problems of excess bank capacity, high levels of NPLs and poorly adapted business models.”

IMF homes on the eurozone's weakest link: Italy

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Noting that threats to global financial stability had increased since its last health check in October, the IMF said: “The main message of this report is that additional measures are needed to deliver a more balanced and potent policy mix for improving the growth and inflation outlook and securing financial stability. In the absence of such measures, market turmoil may recur.”

It added that there was a risk investors would demand high interest rates and that tougher financial conditions would create a “pernicious feedback loop” of fragile confidence, lower growth and inflation, and rising debt.

“Disruptions to global asset markets could increase the risks of tipping into a more serious and prolonged slowdown marked by financial and economic stagnation.”

Financial soundness could be eroded to such an extent that both economic growth and financial stability are affected. In such circumstances, world output could be 3.9% lower by 2020 than the IMF is expecting. José Viñals, the IMF’s financial counsellor, said that was equivalent to a year’s growth.

The stability report said banks in advanced economies had become safer in recent years and were now better placed to withstand financial strain.

Even so, banks had come under market pressure at the start of the year, reflecting concerns about their business models in a period when economic growth was sluggish.

It said approximately 15% of banks in advanced economies (measured by their assets) faced significant challenges in attaining sustainable profitability without reform, rising to one third in the euro area.

The IMF said deteriorating profitability and unresolved legacy challenges raise the risk that external capital and funding could become more expensive, particularly for weak banks with very low share prices. “Italian banks face a particular challenge in this regard, as market pricing has reflected investor confidence that some banks may face difficulties in growing out of their substantial non-performing loan overhang, despite constructive steps taken by Italian authorities to facilitate balance sheet repair.”

The IMF also expressed concerns about China, the world’s second biggest economy, which is in the throes of a transformation of its economic model away from exports and towards consumer demand. It said China’s rebalancing was inherently complex, and slower growth had eroded corporate sector health. “A comprehensive plan to address the corporate debt overhang would assist a steady deleveraging process.”

It is closely monitoring the impact of falling oil prices on the health of firms dealing in commodities, since higher debt burdens intensify the pressure on banks.

“Policymakers need to build on the current economic recovery and deliver a stronger path for growth and financial stability by tackling a triad of global challenges – legacy challenges in advanced economies, elevated vulnerabilities in emerging markets and greater systemic market liquidity risks.

“Progress along this path will enable the world’s economies to make a decisive break toward a strong and healthy financial system and a sustained recovery. In such a scenario, world output could expand by 1.7% relative to the baseline by 2018.”

Asked about the potential consequences of a decision by the UK to leave the EU, Viñals, said: “The uncertainty that will follow a leave vote is going to be protracted. It may last a couple of years.

“It is going to create uncertainty not only for the economy but for the financial sector.”

Viñals refused to be drawn on whether a vote to leave the EU would put London’s role as the world’s main international financial centre at risk. He said that would depend on what sort of arrangement Britain negotiated with the EU after a vote to leave.